Equifax: Credit Card Balances Down 28%
ATLANTA-Existing bank credit card balances as of April were 28% below their peak levels from three years ago, according to Equifax's May National Consumer Credit Trends Report.
The company said balances were $531 billion in April, compared to slightly more than $730 billion in January 2009. Retail card balances have not trended up or down, remaining even with seasonally adjusted pre-recession levels, but the number of retail card accounts fell sharply. Over the 28 months ending December 2010, card accounts fell by 22%. They have since grown by 4.7%, reaching 173 million accounts.
In April 2012, available credit for retail credit cards (the difference between total credit limits and balances) increased approximately $5 billion after bottoming out in Q4 2011, driven primarily by rising credit limits.
"The combination of increased available credit and more timely payments among card borrowers has led to the recent growth in card lending," said Equifax Chief Economist Amy Crews Cutts. "Consumers are starting to respond to increased credit availability both in cards and other tradelines, a signal of both their financial confidence and improving economic conditions. In turn, this increased consumer credit activity bodes well for U.S. economic growth through the second half of 2012."
Other findings of the report include:
* Aggregated bank card credit limits have held steady for the past six months at $2.4 trillion, roughly 6.6% higher than the low point set in February 2011.
* From April 2010 to April 2012, bank card balance write-off rates declined by more than half (from 13.2% to less than 6%).
* New bank card issuance rose almost 37% in February 2012 relative to the same month a year ago.
* The credit limit on new cards averaged $4,784 in February 2012, a 17% increase from the February 2011 average of $4,008.
* Utilization (the ratio of balances to credit limits) was slightly more than 22% in April 2012, nearly equaling November 2007 lows.
* As of March 2012, roll rates (the rate at which consumers progress from the "current" stage in payments to 30 days past due) have remained below 1% since February. This marks the first instance in more than five years roll rates have remained at this level for more than two months.
* Bank credit card charge-off dollar rates (amounts deemed uncollectable by banks) hit 5% in April 2012, nearly 58% lower than the March 2010 peak of nearly 12%.
* Retail card credit limits are stabilizing after falling 15% in early 2010 and another 7% in mid 2011 (currently at $299 billion).
For info: www.equifax.com
Scammers Working Harder To Fool Cybercrime Savvy Consumers
CAMBRIDGE, Mass.-The number of unique phishing reports submitted to the APWG rose substantially from early fall through the end of 2011, while cybercrime gangs apparently were forced to work harder and smarter to fool increasingly fraud-savvy consumers into falling for their confidence schemes.
In the APWG's H2 2011 Phishing Activity Trends Report, the number of unique phishing reports submitted to the organization during H2 2011 climbed to a high of 32,979 in December, some 19% lower than the all-time high of 40,621 reports recorded in August 2009.
"As expected, during the second half of 2011, phishing attack campaigns continued to increase as we approached the holiday season," said Ihab Shraim, CISO and VP, AntiFraud Operations and Engineering, MarkMonitor and Trends Report contributing analyst. "We detected 23% more phishing attacks in the second half of 2011 than we saw in the first half of 2011."
The techniques used to obscure the true source of phishing communications changed markedly over the half. Carl Leonard, a Trends Report contributing analyst from Websense Security Labs said, "Over the last half of 2011 there was a visible trend of phishers and scammers seeking to hide their intentions. Even fewer phishing websites are using the oh-so-obvious IP host to host their fake login pages, instead preferring to host on a compromised domain.
"There has been a 16% drop in the number of phishing URLs containing the spoofed company name in the URL," Leonard said. "These combined trends show how phishers are adapting to users becoming more informed and knowledgeable about the traits of a typical phish."
Trends Report contributors observed a substantial increase in the distribution of Trojan programs used by cybercrime gangs to animate their data-stealing schemes on users' PCs and mobile devices.
Luis Corrons, PandaLabs Technical Director and APWG Trends Report contributing analyst, said the growth of Trojans was substantial during the half, growing to 73% of all malware sampled by the end of 2011, up from 60% in 2009 and 56% in 2010. Corrons said all other malware categories lost ground with respect to Trojans during H2 2011.
The focus for many cybercrime technology developers in H2 2011 was on malware targeting mobile devices, according to Websense's Leonard.
"A great many of us use our mobile phones to check our bank account balances using the plethora of applications available. We saw malware authors seeking to exploit this in 2011, and it could turn out to be an increasingly attractive attack vector in 2012 as tablets and smart phones are adopted not just for personal use but for corporate use also," Leonard said.
For info: www.apwg.org
Compliance, Social Media Top FI Concerns
AUSTIN, Texas-The top items financial industry executives are currently trading on the cbanc Network include FDIC compliance management programs, social media policies, and mobile device policies.
The cbanc Network says it is the largest, free online network for credit union and banking professionals to collaborate and share knowledge. It said the latest real-time data for May 2012 shows CU and bank presidents are researching and reviewing social media policies covering the usage of all the networks and holding employees accountable. FI presidents also are looking at "Your Security is Important" letters that can be used to "market" to members/customers about multi-factor authentication and online security.
Other hot topics include: information security and IT employee acceptable user agreement policies, OREO policies, loan pricing sheets, and environmental risk and liability policy for commercial loans.
"The first question smart executives ask when tackling a new problem is: what are my peers already doing on this issue?" said cbanc President Myers Dupuy.
For info: www.cbancnetwork.com
TMG Issues White Paper For FIs Renewing Processing Contracts
DES MOINES, Iowa-To assist financial institutions undergoing a card-processing contract renewal, The Members Group said it has issued a white paper with important questions card managers may want to ask of their teams.
Authored by Lesley Hastings, TMG's director of new client partnerships, the white paper underscores the importance of several qualities TMG deems important to the financial institution-processor partnership. Hastings, who serves on the board of directors for the Northwest Card Association, regularly helps financial institutions decipher the latest payments developments, emerging technologies and compliance challenges.
"What motivates a financial institution's curiosity about alternative providers often isn't some catastrophic experience with their current partner," writes Hastings. "Rather, it's a nagging sense that something about the partnership just isn't right."
Among the 11 questions Hastings recommends card teams discuss at least one year prior to renewing a processor contract are:
* Are our unique cardholders being taken into consideration or does the processor apply a one-size-fits-all philosophy to our business?
* How much control of our card programs do we want, and can the processor flex to meet our specific requirements?
* Does our team have the expertise to manage regulatory changes, and if not, can we rely on the processor for assistance?
For info: the white paper, "When the Grass Really is Greener: Evaluating Your Processing Partner at Renewal Time," is available for download at themembersgroup.com/prrenewal
Study: Investment Education Works
PEWAUKEE, Wis.-Investor Education in Your Workplace, a program developed with the help of Wisconsin credit unions, positively impacts investing behavior, according to new research.
Researchers from the University of Wisconsin-Madison found that employees improved their financial behavior after taking part in the program's 10-part online education series, covering such topics as "Basics of Investing," "Investing in Mutual Funds" and "Working with Financial Advisers."
After taking the series, 8% of the participants reported opening an individual retirement account, 6% reported establishing a written budget, and 5% each reported drafting a written financial plan and saving for three months of expenses.
In a report for the Filene Research Institute, J. Michael Collins, assistant professor and director of the Center for Financial Security at the University of Wisconsin, said the research "supports the idea that remote learning tools such as online education can improve financial knowledge and lead to better financial behavior. That is promising in a cultural environment that increasingly prizes on-demand information access."
The program, made possible thanks to the Investor Protection Institute and Investor Protection Trust, encourages credit unions-and thereafter, other employers in their communities-to offer voluntary, online investment education to employees.
During the pilot phase of the program, from 2009 to 2011, each credit union employee completed 10 hours of self-paced study of basic investment concepts online. Fourteen of those grads completed more advanced online study to become Certified Financial Educators through the Heartland Institute. They, in turn, encouraged participation by additional companies. In Wisconsin, 5,476 learners from 80 credit unions and 24 Wisconsin businesses completed 60,000 hours of investment training.
The program has been used in three states to encourage proactive investing. It is expected to stimulate many millions of dollars in investing nationwide. In 2011 the program received a Wisconsin Financial Literacy Award.
Funding for the program includes a grant of $30,000 from the National Credit Union Foundation and $500,000 in grants from the Investor Protection Trust, a nonprofit organization devoted to investor education. Additional partners in the project include the Wisconsin Department of Financial Institutions and the Educated Investor, which provides the online university system and assistance with project management.
Credit unions are participating in the project as part of their REAL Solutions initiative, which helps people of all incomes build wealth.
For info: www.investorprotection.orgStrategic Defaults To Plague Real Estate Market Throughout 2012
MINNEAPOLIS-A plurality of bank risk managers (46%) expect the volume of strategic defaults in 2012 to surpass 2011 levels, as more than 25% of U.S. homeowners owe more on their mortgages than their homes are worth, according to FICO.
FICO, a provider of analytics and decision management technology, announced additional results from its latest quarterly survey of bank risk professionals, finding 19% of bankers polled expected the number of strategic defaults in 2012 to match that of 2011.
"After five years of a brutal housing market, many people now view their homes more objectively and with less sentimentality," said Dr. Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. "Regardless of legal or ethical issues around strategic defaults, lenders must account for this risk when they evaluate mortgage applications in declining markets. Many homeowners who find themselves upside down on mortgages in the future are likely to consider strategic default as an acceptable exit strategy."
Concerns about strategic defaults also were reflected in response to a question about the consumer payment hierarchy. When asked if the current generation of homeowners considers their mortgage to be their most important credit obligation, 49% of bankers said no. By comparison, 29% said yes.
Although concerns remain regarding strategic defaults, other signs point to growing stability in the housing market. More respondents (26%) expected delinquencies on mortgages to decline in the coming months than at any previous time in the two years FICO has been conducting this survey. Furthermore, 53% of respondents said the housing market would improve by the end of 2012, compared to 24% who said the market would deteriorate.
"Lenders seem to believe the housing market is starting to stabilize," said Jennings. "Defaults, whether strategic or not, continue to be problematic. However, a gradually improving job market could begin changing the dynamics in housing. If job creation continues, banks will be more likely to embrace mortgage lending once again. A healthy job market is essential for improving the quality of mortgage applications and reducing default risk."
A majority of survey respondents (56%) expected the supply of credit for residential mortgages to fall short of demand over the next six months. A similar majority (53%) expected the supply of credit for mortgage refinancing to fall short of demand, indicating lenders remain cautious about the risks in the real estate market.
The survey included responses from 263 risk managers at banks throughout the U.S. in February 2012. FICO and PRMIA extend a special thanks to Columbia Business School's Center for Decision Sciences for its assistance in analyzing the survey results.
For info: www.prmia.org/PRMIA-News/Fico-1stQuarterApr2012a.pdf
Bank Account Service Fees Down $2 Billion In 2011
SAN ANSELMO, Calif.-The amount of money banks generated from fees on deposit accounts decreased from $36.2 billion in January of 2011 to $34.1 billion in December of 2011-a decrease of $2.1 billion or 5.8 %, according to analysis from Market Rates Insight.
Since the beginning of the last recession, MRI said income from service fees on deposit accounts dropped from $39.2 billion in December of 2007 to $34.1 billion in December of 2011-a decrease of $5.1 billion or 13%.
Income from service fees on deposit accounts declined despite an increase in the total amount deposited in banks. MRI said total deposits at FDIC-insured institutions increased by $800 billion in 2011-an increase of 8.5%. The increase in total deposits since the beginning of the recession in December of 2007 has been $1.8 trillion, from $8.4 trillion to $10.2 trillion-an increase of 21.4%. Normally, MRI said an increase in total deposits leads to an increase in the service fees associated with deposit accounts due to increased level of depository activity. However, in the last five years the relationship has been inverse: an increase of 21.4% in total deposits vs. a decrease of 13% in service fees on total deposits.
Service fees on deposit accounts include fees related to: the maintenance of deposit accounts such as failure to maintain specified minimum deposit balances, the number of checks drawn on and deposits made to deposit accounts, checks drawn on so-called "no minimum balance" deposit accounts, withdrawals from non-transaction deposit accounts, closing of savings accounts before a specified minimum period of time has elapsed, accounts inactive for extended periods of time or which have become dormant, deposits to or withdrawals from deposit accounts through the use of automated teller machines or remote service units, the processing of checks drawn against insufficient funds, or "NSF check charges" a bank assesses regardless of whether it decides to pay, return, or hold the check, and issuing stop payment orders, certifying checks, and similar services.
"These findings suggest the potential for fee income from traditional services is gradually diminishing," said Dan Geller, EVP at Market Rates Insight. "Institutions need to start offering value-added services that consumers want and need and are willing to pay for."
For info: www.marketratesinsight.com
Faces Of Fraud Survey: Consumer Alert FIs To Problems
CHICAGO-Financial institutions should be putting fraud monitoring tools in the hands of consumers for the highest levels of security, Authentify determined when analyzing the results of the 2012 Faces of Fraud Survey.
The annual study of banks, conducted by Information Security Media Group (ISMG) and sponsored by Authentify and others, seeks to discover the latest fraud trends and how institutions are fighting back.
The survey results indicate that while bank customers are not the root cause of fraud, they actually are one of the top sources for fraud detection. Banks responding to the survey reported that the three leading causes of fraud they experienced were card-not-present (CNP) (56%), data breach at a retailer or processor (53%), and POS skimming (47%)-all root causes over which the consumer has very little control. However, when asked how a fraud incident was usually detected, 82% of banks said that it was when a consumer notified them.
"Many banks put anti-fraud measures in place that are invisible to the account holder so as not to be an inconvenience. Customers need to be given more credit-they know what is supposed to be happening in their account and can recognize a fraudulent transaction right away. This is evident in the survey, with banks recognizing that 82% of fraud events are brought to them by the account holder," said Peter Tapling, Authentify's president & CEO. "Today, with advances in out-of-band technologies and the proliferation of smart phones and other smart devices such as tablets, it is much easier to proactively engage the user in the war on fraud."
Other positive news from the survey: one-third of the respondents indicated plans to invest in out-of-band authentication in the upcoming year, while 70% of the respondents reported stronger authentication layers have already been implemented.
"From the results, it seems that banks are starting to recognize how valuable it can be to both engage and more strongly authenticate the end user. By taking these steps the bank strengthens the relationship and achieves an overall higher level of trust," said Tapling.
For info: www.bankinfosecurity.com/surveys.php?surveyID=11
Temkin Group: CUs Have Earned Forgiveness
WABAN, Mass.-U.S. credit unions have accumulated good will with consumers because they are steadfastly working on their members' behalf, and consumers are more willing to forgive credit unions when they make an honest mistake compared with banks, according to a Temkin Group Report.
Temkin Group, a customer experience research and consulting firm, said its 2012 Temkin Forgiveness Ratings rate how likely consumers are to forgive 206 large companies across 18 industries if they deliver a service miscue. This is the second year Temkin Group has published these ratings. The research, which is based on a survey of 10,000 U.S. consumers in January 2012, shows consumers are most likely to forgive USAA, credit unions, H.E.B., Hy-Vee, Dollar Rent A Car, Chick-fil-A, Publix, Costco and Amazon.com.
At the other end of the spectrum, consumers were least likely to forgive Citigroup, Charter Communications, HSBC, Chrysler dealers, EarthLink, Bank of America, Comcast, Quest and US Airways.
"Forgiveness is a valuable asset that you earn by consistently meeting customers' needs, but many companies don't have enough forgiveness stored up to recover from their miscues," said Bruce Temkin, author of the research and managing partner of Temkin Group.
The 2012 Temkin Forgiveness Ratings cover 18 industries: Airlines, appliance makers, auto dealers, financial institutions (banks and credit unions), car rental agencies, computer makers, credit card issuers, fast food chains, grocery chains, health plans, hotel chains, insurance carriers, Internet service providers, investment firms, parcel delivery services, retailers, TV service providers and wireless carriers.
Temkin Group said grocery chains have earned the most forgiveness from consumers, followed by retailers, appliance makers and parcel delivery services. However, consumers are not very likely to forgive mistakes by credit card issuers, Internet service providers and TV service providers.
The research also examined how individual companies are rated, relative to their industry peers. Credit unions, USAA, Hyatt, US Cellular, Dollar Rent A Car, Chick-fil-A, and Bright House Networks were more than 15 percentage points above their industry averages.
Five companies fell 15 or more percentage points below their industry's average Temkin Forgiveness Ratings: Chrysler dealers, Citigroup, Travelers, Charter Communications and RadioShack.
Temkin Group analyzed changes in Temkin Forgiveness Ratings between 2011 and 2012 and found consumers are more forgiving this year than they were last year.
Sixty-eight of the 139 companies that were in the 2011 and 2012 Temkin Forgiveness Ratings earned double-digit improvements, and four companies improved by more than 25 percentage points: credit unions, TD Ameritrade, Lenovo and USAA.
Ten companies lost ground during the past year, with the biggest declines coming for Citigroup, Continental Airlines, Travelers, Sears, Holiday Inn Express and The Hartford.
For info: www.temkingroup.com
JD Power: Consumer Satisfaction With Bank Fees Drops
WESTLAKE VILLAGE, Calif.-Consumers grew increasingly dissatisfied with retail banking fees in the past year, with a satisfaction index at 608, down significantly from 625 in 2011 and 656 in 2010, according to analysis by J.D. Power and Associates.
The company's 2012 U.S. Retail Banking Study, in its seventh year, found overall retail banking customer satisfaction is stagnant, improving by one point in 2012-to 753 on a 1,000-point scale. The study measured six factors of satisfaction: account activities, account information, facility, fees, problem resolution and product offerings.
Monthly maintenance fees had the most significant impact on fees satisfaction this year-more so than in the 2011 and 2010 studies-while ATM and debit card fees had less negative impacts on fees satisfaction.
"The negative reaction to fees reflects customers' irritation about paying for something they did not have to pay for in the past," said Michael Beird, director of banking services at J.D. Power and Associates. "It also reflects a lack of their complete understanding about what they are getting for those fees. Customers understand why they are being charged for ATM and debit card use, but are not clear on what they are getting for monthly maintenance fees, which drives the bigger drop in satisfaction with those fees."
The study noted improvements in satisfaction with facilities and routine transactions, and with reliability and ease of using ATMs, with the percentage of customers who use ATMs to make deposits more than doubling to 40% in 2012 from 19% in 2008. Regional banks-defined by the survey as banks with $33 billion to $180 billion in deposits-saw the biggest drop in satisfaction, dropping to 759 from 760, when compared to small banks and big banks.
Big banks still lag other banks in overall satisfaction, but they have improved in reducing the number of problems customers experience and in problem resolution, especially at first contact, said Beird.
Credit unions were not included in the study.
For info: www.jdpower.com
February Residential Property Values Down 0.8%
OXFORD, Miss.-U.S. residential property values continued to show signs of persistent weakening, ending February with a seventh consecutive month-to-month decline, according to FNC's latest Residential Price Index (RPI).
Despite sharply rising activities in existing home sales and new housing starts from a year ago, prices on non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales) continue to slide, down 0.8% from February or 3.0% from a year ago. In this seven-month period, the steady price declines on non-distressed properties coincided with a rising share of distressed properties in total home sales, which climbed from 22.8% in July to 27.0% in February, pushing down the prices on non-distressed home sales. Continued acceleration in disposing the inventory of distressed homes could further dampen home prices in the coming months, FNC warned.
Based on the latest data on non-distressed home sales (existing and new homes) through February, FNC's national RPI shows that single-family home prices fell in February to a seasonally unadjusted rate of 0.8%. As a gauge of underlying home value, the RPI excludes sales of foreclosed homes, which are frequently sold with large price discounts reflecting poor property conditions.
All three RPI composites (the National, 30-MSA, and 10-MSA indices) show similar month-to-month declines in February, down about a percentage point from January. The three-month trends indicate that the pace of month-to-month price declines has remained relatively steady.
The indices' year-to-year trends continue to show signs of improvement. According to the national RPI, home prices nationwide declined at a seasonally adjusted rate of 3.0% in February, the slowest pace in the last 20 months. The year-to-year declines at the nation's top housing markets, as indicated by the 30- and 10-MSA composites, have also decelerated to below 4.0%-their slowest pace since May 2010.
For info: www.fncinc.com
SNL Financial: Banks Migrating To Higher-Income Areas
CHARLOTTESVILLE, Va.-Banks have 2,500 more branches across the U.S. than they did on June 30, 2006, but according to SNL Financial the makeup of those branches has changed as the industry shifts its focus to building branches in higher-income areas.
To make comparisons between years more consistent, SNL said it used census tract market definitions and median household incomes as of July 1, 2011, as the basis for analyzing branch openings and closings in markets for all years. Years are based on the Summary of Deposits cycle and are either as of, or reflect changes in the last-12-months ended June 30 for the stated year. SNL defines lower-income markets as those where the median household income is less than $25,000 and moderate-income markets as those where the median household income is between $25,000 and $50,000.
At the beginning of 2007, there were 5,506 bank and thrift branches located in census tracts with a median household income of $100,000 or more. Since then, 462 net new branches have been opened in these highest-household-income markets, an 8.4% increase.
In contrast, there were 5,626 branches in census tracts with a median household income of $25,000 or less at the start of 2007, and a net 70 branches have since closed, a 1.2% decrease. There are now more branches in areas with median household incomes of $100,000 or more than there are in areas with median household incomes of $25,000 or less.
Markets with median household incomes between $50,000 and $100,000 gained the largest absolute number of branches, netting 1,919 new branches in the nearly six-year span.
Since 2007, Woodforest Financial Group, Inc., opened the largest number of branches in markets with median household incomes below $50,000, netting 333 additional branches. As of April 17, branches in lower- and moderate-income markets accounted for 58.5% of Woodforest's total branches, up from 48.6% at year end 2006.
Approximately 61.9% of Woodforest's branch openings since the start of 2007 were in markets with median household incomes below $50,000.
Of Woodforest's 761 active and de novo branches, 720 are in-store branches and 701 of those are located in either a Wal-Mart or Sam's Club.
Capital One Financial Corp.'s net addition of 40 branches in lower- and moderate-income areas helped offset net closures in upper-income areas. Despite only building a net 15 branches across all income segments since July 1, 2007, Capital One's total branch count increased by 664 with help from the company's acquisitions of Chevy Chase Bank FSB and North Fork Bancorporation Inc. Presently, branches in markets with median household incomes above $50,000 account for 65.3% of Capital One's total branches, up from 37.6% at year-end 2006.
In analyzing company-specific branch trends, SNL attributed openings and closings to the company that owned the branch at the time. For instance, if Wachovia Corp. closed a branch prior to its merger with Wells Fargo & Co., the closing would not be attributed to Wells Fargo. However, if Wells Fargo closed a branch it received as part of the deal, the closing was attributed to Wells Fargo.
Wells Fargo closed a net 367 branches in sub-$50,000 markets, the most of any bank in the U.S. However, closures in the sub-$50,000 segment accounted for less than half, or 47%, of the company's total closures across all income levels.
Bank of America Corp. closed a net 201 branches in lower- and moderate-income markets since year-end 2006, yet that has not affected the company's branch concentration in those areas. In 2011, branches in sub-$50,000 markets accounted for 46.3% of total branches, up from 460% at year-end 2006.
For info: www.snl.com
Americans Say Personal Finances Need 'Major Overhaul'
WASHINGTON-When asked to describe the state of their personal financial situation, 80% of more than 1,400 respondents admitted their finances were in need of a major overhaul, according to the April poll hosted on the National Foundation for Credit Counseling (NFCC) website.
"This statistic parallels the findings of the recent NFCC Financial Literacy Survey in which 80% of adults indicated they could benefit from additional advice and answers to everyday financial questions from a professional," said Gail Cunningham, spokesperson for the NFCC. "It is encouraging that people recognize how perilous their financial situation has become. Now they need to take action to resolve the problem and keep it from spiraling out of control."
To help consumers determine if their finances could use an overhaul, the NFCC developed the following 10-question True/False quiz:
My credit card balances increase each month.
2. There are arguments in my home about money.
3. I have thought about filing for bankruptcy.
4. Most of my credit cards are near the limit, so I've begun applying for new lines of credit.
5. I do not know the total amount that I owe.
6. I skip paying my bills some months, or pay late.
7. My debt interferes with my job and/or home life.
8. Collectors have begun contacting me.
9. If I lost my job, it would mean an immediate financial crisis in my life.
10. I have no emergency savings account.
Consumers answering True to any of the above questions would benefit from credit counseling with a trained and certified counselor, the NFCC said.
The actual survey question and responses were as follows:
My personal finances...
Are putting along just fine = 4%
B. Could use a tune-up = 13%
C. Are in need of a major overhaul = 80%
D. Have never been better = 3%
For info: www.nfcc.org
Study: CDFIs Should Collaborate To Cut Costs
DURHAM, N.H.-Community Development Financial Institutions have succeeded in lending to and investing in individuals and communities not served by conventional financial institutions, while maintaining loan performance standards generally equivalent to those of the conventional financial sector, according to new analysis.
The Carsey Institute, under contract to NeighborWorks America and the U.S. Department of Treasury's CDFI Fund, conducted a detailed analysis of a large sample of CDFIs on issues of capitalization, liquidity and portfolio, and risk management from 2005 to 2010.
While it is true that "the costs of serving these individuals and communities is somewhat higher" due to the technical assistance provided by CDFIs, said report co-author Michael Swack of the Carsey Institute, "some additional costs incurred by CDFIs could be mitigated" if as a group they undertook certain changes in their operating procedures.
The report said analyses strongly support a finding that CDFIs with larger assets are much more likely to achieve high self-sufficiency ratios than institutions with smaller assets. There is a powerful scale effect among loan funds, as well as among CDFI banks and credit unions.
Among CDFI Loan Funds, the results show that larger funds outperform smaller ones along a range of factors that may result in greater self-sufficiency:
1. Drastically lower combined interest and operating expense ratios
2. More leverage on their balance sheets
3. Generally higher deployment ratios
4. Substantially lower levels of charge-offs as organizations progress from $1 million in assets and up
Similarly, among CDFI credit unions, larger CUs have stronger net income performance while charging lower interÃÂ¬est rates and fees on their loans, in large part by keeping non-interest expenses low.
The study made five policy recommendations:
1. Create networks, build infrastructure, attract resources and build scale
2. Promote the Availability of longer term capital
3. Promote streamlined access to industry data
4. Promote and document innovation
5. Promote Education and Training
For info: www.carseyinstitute.unh.edu
Avoid Preconceptions Of Prepaid Cards
SAN ANSELMO, Calif.-Contrary to the belief that prepaid reloadable cards are for the unbanked, research from Market Rates Insight found 47.1% of existing credit union members and bank customers are likely to use such cards if offered by their financial institution.
These consumers indicated a willingness to pay an average of $4.21 per month for the use of a prepaid card.
According to MRI, its recent "Integrated Study on Service Fees" also found a misconception about the demographics of consumers likely to use prepaid cards. The notion that mostly low-wage earners use prepaid cards might have been true in the past, but it is about to change, the company said. The study found among consumers who are likely to use prepaid cards, 36.7% earn between $35,000 and $65,000 per year; 22.1% earn between $66,000 and $100,000 a year; and 14.8% earn more than $100,000 per year.
Another misconception is prepaid cards are the preferred payment method of very young consumers, who may not have a credit card or banking relations. MRI said this might have been the case in the past, but is not the case moving forward. The study found 42.3% of consumers likely to use prepaid cards are baby boomers ranging in age between 47 and 66 years old.
"Expect prepaid reloadable cards to become the norm in the future," said Dan Geller, EVP at Market Rates Insight. "The research clearly shows that baby boomers, who are the largest segment of the U.S. population, are likely to adopt prepaid cards as their main payment method."
For info: www.marketratesinsight.com